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What Determines If Hotel Projects Move Forward?

March 3, 2017

By Carrie Rossenfeld – GlobeSt.com

IRVINE, CA—Timing is a major issue in hotel projects as this point; if a project is not far enough along in drawings, permits, etc., it may not make it off the ground, R.D. Olson Construction’s president Bill Wilhelm tells GlobeSt.com. The firm, a successful builder of hotel properties in California recently completed construction on Homewood Suites by Hilton Irvine/John Wayne Airport. The ground-up project marks the firm’s first partnership with Irvine-based hotel management and development company DKN Hotels.

The four-story, 161-room hotel is located in the Irvine business and industrial district and is close to Orange County shopping centers the District, South Coast Plaza and Fashion Island. The hotel represents the firm’s third completed project in Irvine, with the Irvine Spectrum Marriott currently underway.

The 126,000-square-foot hotel boasts studios and one- and two-bedroom suites with 42‑inch HDTVs and kitchens that include a full-size refrigerator, microwave, stove and dishwasher. The property’s outdoor amenities include a pool and spa, fire pit, BBQ grills and a sports court with options for basketball, volleyball, badminton and smashball.
R.D. Olson also recently completed work on the 174-room Country Inns & Suites by Carlson in the Anaheim Resort District and the 200-room Residence Inn by Marriott hotel in Wailea, Maui, HI, the first family-centric hotel in Wailea. Other recent completions include Paséa Hotel & Spa in Huntington Beach, CA, the 144-room Residence Inn by Marriott in Old Town Pasadena, CA, and the 94-room Hampton Inn & Suites in Glendale, CA. The firm is currently building additional regional hospitality projects including the 130-room Lido House Hotel resort in Newport Beach, CA; the 271-room full-service Irvine Spectrum Marriott in Irvine, CA; and the 118-room Residence Inn by Marriott Santa Barbara/Goleta in Goleta, CA.

We spoke with Wilhelm about the Homewood Suites project, hotel-development trends he is noticing in Orange County and takeaways from ALIS, which he recently attended.

GlobeSt.com: Why was this project a good fit for the airport market?

Wilhelm: It is in kind of a secondary airport to the market, and based on its vicinity to the airport, will allow it to be a strong secondary feeder to the airport market. It’s not directly at the airport, but a spit throw away. It has easy access, and it’s in an area with a lot of corporate business, more industrial type of business. It’s a great location: off the beaten path, but with great geographic identification. Also, Tustin’s Marine Corps Air Station is still going thru major discussions—what will they do and what will happen. It’s the first steps to what will eventually be promising development in that area.

GlobeSt.com: What hotel-development trends are you noticing in Orange County?

Wilhelm: There are two trends. One is that Orange County itself has had so much growth take place—both residential growth and continued enhancement of corporate growth. The business sector and the growth of tourism, Disneyland and that whole market has been strong. Disneyland continues to do what the Irvine Spectrum area is doing: constantly challenge themselves by asking, “What are we current with what are the general population’s needs? What can we offer our guests in terms of more experiences? They’re always thinking outside the box on enhancements. Irvine Spectrum, too, constantly challenges itself as far as what the needs are today. In the Spectrum area, some retail pieces have come and gone, and they’re stepping up more food-service providers. They’ve done a good job of putting great restaurants in and entertainment so people want to hang out there—you can have a great dinner and people watch. You have the tourist side of it and also the corporate business side of it. When you look at the occupancy and rental part of it in the Orange County market, so many things are taking place where companies are repositioning and expanding based on the opportunities.

The office side has also picked up. But from a hospitality perspective, Orange County is an area that has done well and has additional growth opportunities because you have multiple feeders: tourism, corporate and residential.

GlobeSt.com: What trends did you notice at this year’s ALIS conference?

Wilhelm: The overall trend is one of a little bit of caution. Predictions still show a very strong year, 2017 going into 2018; predictions are that they will be equivalent to 2016, and there may be a little bit of growth. There are a number of projects that are in planning, under construction and in development.

I look at timing and finance. I really want to understand where they are in the timing cycle: drawings, permits, where are they in their financing? There’s a concern that somewhere down the road, we will start to see a few deals not go forward because of timing. We’re also seeing some developers that recognize that. Everyone is looking forward and trying to make that mad dash to the finish line; there’s a lot of adaptive reuse where the individual can get their hands on a property and be out there in renovation mode, and then 12 to 14 months later, they now have heads on beds; whereas, a new property could take 14 to 24 months or longer. A lot of it is geographic, too—the market will play a stronghold, and primary markets will always do well.

I’ve heard the saying, “California isn’t overbuilt; it’s under-demolished.” From a hotel perspective that’s so true. There are so many older properties, but what will it take to bring a 25-year-old property to current standards. I think in today’s world, everyone’s willing to pay a few more dollars for a fresh, new property that provides the experience that people are seeking. You want to be out and engaged with socialization around you, whether out by pool or in the lobby. There’s a lot of business taking place in common areas among people who may not even be guests of the hotel, but are using the business-area environment. It’s a way to do business to have a cup of coffee and have a meeting.

GlobeSt.com: What does your firm currently have in the pipeline?

Wilhelm: We’re busy, but always looking for great opportunities. We have some nice projects under construction today in hospitality, including new ground-up hotels and adaptive reuse that converts office to hotels. We’re doing a refresh of Palomar Hotel in Beverly Hills, CA—we’re refurbishing the lobby, bar area and amenities. We’re also in the time-share market and the education market. Among all those markets, I still see another 18 months of active work with some pretty exciting projects./p